Periodic Positioning and Prospects for the Development of China's Service Industry

By Liu Tao 2015-08-18

The rapid development of the service industry has been a major trend in the global economic structural adjustment, and China could take this opportunity to make a breakthrough for the transformation of its growth momentum and its economic upgrading. In coming ten years, the Chinese economy will encounter such opportunities as deepening the reform, expanding domestic demand and enhancing the country's status in international division of labor, and conditions and basis for the development of the service industry will further improve. From the structuring perspective, and based on the law of evolution for the internal structures of the service industries of typical industrialized counties, such as the United States, France, Germany, Japan and South Korea, this paper analyzes the development of China's service industry and looks ahead on the future development of the country's service industry in coming ten years.

I. China's Service Industry and Its Main Features

International experience gained in the development of the service industry shows that the development of service industry in China is parallel with the industrial development, and the circulating service industry holds a dominant position in the service industry. Given the impact generated from the development, the internal restructuring of China's service industry tallies basically with the facts and experiences presented by typical industrialized countries and the development of the producer services tallies highly with international experiences; yet the overall level of the service industry falls short and, in particular, the added value of the circulating service industry holds an evidently low proportion in GDP value.

1. The development of service industry is parallel with the industrial development, with its proportion on a rather low side

Since the reform and opening up, China's service industry has maintained a rapid development. During 1978~2011, the added value of the service industry grew by an annual average of 10.9% in real terms, being higher than the annual average GDP growth rate of 9.9% during the same period, but being 0.5 percentage points lower than the real annual average growth of the added value of the secondary industry. After the entry into the 21st century, the service industry develops faster. During 2001~2011, the annual average growth rate of the added value of the service industry reached 11.1%, being 0.9 percentage points higher than the annual average growth between 1990~2001. At the same time, the proportion of the added value of China's service industry in GDP increased from 23.9% in 1978 to 43.4% in 2011. In 2011, China's per-capita GDP topped 5,430 US dollars (calculated in USD at current prices), equivalent to 8,594 international dollars (calculated in international dollars in 1990). According to international experience, China's service industry is witnessing its second-stage development, namely, a period in which the development of service industry develops is parallel with the industrial development.

Compared to typical industrialized countries, in 2011 the proportion of the added value of China's service industry in the country's GDP was almost 15 percentage points lower than that of South Korea, 27 percentage points lower than that of Germany and Japan, and more than 36 percentage points lower than that of the United States and France. Given the impact produced in the development, the proportion of China's service industry presents itself identical with international experiences, the decreasing proportion of the service industry has been dwindling in contrast to the direct comparisons conducted in the same years, yet a gap of about 15 percentage points still exists. Nonetheless, the statistical underestimation is an important factor not to be neglected in the service industry.

2. The circulating service industry holds a dominant position in the service industry but develops at a level evidently lower than the level featuring typical industrialized countries during same development periods

According to Singelmann's "Quartering Method", results from sorting out the industry-classified data on China's service industry find that, from 1990s up to the present, the circulating service industry has always been the most essential industry in China's service industry. During 19911~1996, the proportion of the added value of the circulating service industry in GDP showed a downward trend on the whole from 14.4% in 1991 to 12.8% in 1996. Afterwards, the proportion of the circulating industry went up gradually to 15.9% in 2004. In recent years, the proportion of the circulating industry remained relatively stable, being 15.6% in 2010 (Figure 1).

Figure 1 Changes in Internal Structure of China's Service Industry During 1991~2010

Compared to the same development periods experienced by typical industrialized countries, the development level of China's circulating service industry is evidently on the low side. When the per-capita GDP equaled 3,000~9,000 international dollars, the proportion of the added value of China's circulating service industry turned out 6~10 percentage points or so lower than that of the United States, France and South Korea, and 3~5 percentage points lower than that of Japan and Germany (Figure 2).

Figure 2 Contrast between the Proportion of China's Circulating Service Industry and Typical Industrialized Countries

In addition, comparison of the relationships between the proportion of the added value of China's circulating service industry and secondary industry and that of Japan, South Korea and France in the same period of development demonstrates that the development of China's circulating service industry is on the whole consistent with the laws revealed by international experience, that is, during the middle and later periods of industrialization, the proportion of the circulating service industry remains stable on the whole at a higher level. Only in comparison to the proportion of about 20% featuring the circulating service industries of Japan, South Korea and France, the proportion of China's circulating service industry falls nearly 5 percentage points behind.

3. The proportion of producer services continues to go up, which tallies highly with that of the typical industrialized countries during the same development periods

Since 1990s, the proportion of the added value of China's producer services in the country's GDP was going up gradually from 8.9% in 1991 to 14.5% in 2010. During that period, though hit by an array of factors such as the international financial crisis in 2008, the proportion of producer services went down slightly, yet the industry was not hampered severely.